Bill Ackman recent filings confirm that the billionaire activist investor is bearish on long-maturity US treasury notes. Putting his money where his mouth is he has taken out short positions in the US 30-year Treasuries.
In early August Bill Ackman said his hedge fund Pershing Square Capital Management placed a bet against US 30-year Treasuries, calling it both a hedge on the impact of higher long-term rates on stocks and a good standalone bet.
“We are short in size the 30-year T,” Ackman wrote on messaging platform X, formerly Twitter. He argued that if long-term inflation is 3%, not 2%, the 30-year Treasury yield could rise to 5.5%. “It can happen soon,” he said.
Indeed, when we last looked the US 30-year treasury smashed through the 4% threshold at 4.26% at the time of writing.
“Putting his money where his mouth is he has taken out short positions in the US 30-year Treasuries”
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The yield on the US 10-year treasury note is also heading with the 30-year note higher above the milestone of 4%.
Rising Long-maturity treasury note yields increase the cost of servicing loans for big-ticket items such as auto, home and business loans more expensive.
Mainstreet is already feeling the pain of rising yields. US bankruptcies are at record highs.
Moreover, 200,000 autos are repossessed as households struggle to make ends meet in the worst cost of living crisis in generations. Elevated borrowing costs are making a bad situation even worse.
More pain for banks could lie ahead, as it was the underestimating of maturity risk holding treasuries in an inflationary environment that already blew up three banks in Q1, 2023.
Repo rates rose to 4.25% in August, which suggests there is buoyant demand for the Fed’s emergency funding from banks to fund their daily operations.
“We think it’s important that we stick to a 2% inflation target and not consider changing it,” said the Fed head Powell recently.
“We think it’s important that we stick to a 2% inflation target and not consider changing it”
Fed Chair, Powell
But has the Fed lost the plot?
The Fed’s temporary, transitory, sticky inflation narrative turned out to be a fairytale and conservative investors who bought long-maturity treasuries with 1% yields a few years ago are today nursing heavy losses in their book-to-market treasury portfolio.
Inflation is likely to keep heading higher; war in Europe is escalating, which will continue to disrupt the supply and increase the global price of food commodities, energy and metals. If the northern hemisphere has a cold winter gas prices will go sky-high and that will only add to inflation woes. Inflation calculations that exclude food, energy and shelter are as useful as tea leaf reading.
“The best hedges are the ones you would invest in even if you didn’t need the hedge” – Bill Ackman
Bill Ackman recent filings to short treasuries could be a winning play
But the Fed could mess it up by purchasing treasuries and suppressing the yields.
The 30-year Treasurys has climbed above 4% and near its all-time high.
“We implement these hedges by purchasing options rather than shorting bonds outright,” wrote Bill Ackman.
Ackman said higher defence costs, energy transition and the greater bargaining power of workers all point toward higher inflation. The Federal Reserve has raised interest rates aggressively to curb inflation and signalled last month that it is keeping its options open after having raised rates by a quarter point to their highest level since 2001.
“There are few macro investments that still offer reasonably probable asymmetric payoffs and this is one of them,” he wrote.
“The best hedges are the ones you would invest in even if you didn’t need the hedge,” Ackman wrote. “This fits that bill, and I think we need the hedge,” he added.
Public deficit blowout smashing above 32 trillion dollars and showing no signs of being curtailed, supply of treasuries could exceed demand.
In other words, yields could continue heading higher.
Fitch recently downgraded the US government’s top credit rating, which rattled the White House and surprised investors.
“This is our seventh year as an AI-first company, and we intuitively know how to incorporate AI into our products” – Sundar Pichai, Alphabet CEO
Bill Ackman recent filings confirm that the billionaire investor is all aboard the AI bandwagon
Bill Ackman has just upped his bet on Alphabet, according to a second-quarter portfolio update.
Ackman’s Pershing Square portfolio included only six stocks at the end of 2022. Alphabet wasn’t one of them.
That changed in the first quarter of 2023, as Bill Ackman bought north of 8 million shares of Alphabet’s Class C stock and nearly 2.2 million shares of the company’s Class A stock.
The billionaire was back at it in Q2. Ackman’s Pershing Square bought an additional 1.3 million Class C shares of Alphabet for his hedge fund. Pershing Square’s total position in Alphabet now tops $1.5 billion. Alphabet makes up nearly 13% of the fund’s portfolio.
Alphabet’s stock price has skyrocketed close to 50% year to date.
More than half of those gains came after the end of the first quarter when Pershing Square already had a significant position built up.
The company saw its revenue grow 7% to $74.6 billion amid increased AI efforts.
“This is our seventh year as an AI-first company, and we intuitively know how to incorporate AI into our products,” CEO Sundar Pichai said on the earnings call.
Meanwhile, Bill Ackman recent filings confirm his pessimism in home improvements
Latest filings show Ackman’s Pershing Square unloaded a sizable stake in home improvement company Lowe’s in the second quarter.
The hedge fund cut its holdings by 25%, bringing its total stake in the firm to $1.6 billion.
Bill Ackman’s Pershing Square also reduced stakes in consumer-facing brands, including Chipotle and Restaurant Brand International.
What is the takeaway from Bill Ackman recent filings?
The billionaire investor is betting on higher inflation rates.
He sees treasury yields heading higher and believes more Fed rate hikes could follow.
Moreover, household consumption could face strong headwinds, hence his short bets on restaurants and home improvement.